Private securities class actions once were the prevalent liability concern for directors and officers, given their severity and complexity. While private securities class actions persist, executives today are also confronted with a myriad of proceedings from a growing number of governmental authorities, both in the United States and abroad, transforming the executive liability landscape into an even more dangerous one than ever before.
The Securities and Exchange Commission sought to improve its enforcement efforts in recent years by placing more experienced investigators in the field, creating five specialized units to focus on particular violations, and increasing coordination between its units and other agencies. In 2010,492 matters investigated by the SEC were referred to self-regulatory organizations and a variety of state, federal and foreign authorities, for concurrent or separate enforcement, and 139 investigations were referred to criminal authorities for possible criminal prosecution.
The number of securities regulators has increased with global expansion of enforcement efforts. In 2010, the SEC received from foreign regulators 457 requests for enforcement assistance, and sent out 605 of its own requests for assistance. The number of complaints has increased to a point where the SEC recently created the Office of Market Intelligence, to capitalize on the thousands of tips, referrals and complaints received each year. In 2010, the SEC conducted 303 investigations based on tips. The number of securities investigations may increase due to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The escalation in parallel criminal and civil enforcement proceedings, the number of involved regulatory organizations, and the globalization of enforcement have created a remarkably complex securities liability arena. A competent defense today may require different lawyers with particular expertise who work together to coordinate a complex mix of investigations, regulatory proceedings, and litigation.
The Federal Deposit and Insurance Corporation, as receiver, conducts investigations into more than 300 bank failures that have transpired since the outset of the credit crisis. Most take 18 months and include a review of the potential professional liability exposures of the institution's directors and officers. Ultimately the agency may issue demand letters to the executives and seek to...